2-22 Recap, The I’m a Moron Edition

Well, wasn’t that fun?  My account was thoroughly mauled today.  I’m still green for the month, so I (and my investors) am happy about that.  These quick-fire selloff’s have led to great buying opportunities the past few times they have occurred, but it’s prudent to say “guilty until proven innocent” before deploying cash to new purchases.  Just in case you needed a reminder, the stock market is often a staircase up and an elevator down.  Sometimes you just get kicked right down the shaft sans elevator…so, you want to try and avoid that.

I got the hell out of $CVLT and $TIF today after picking up some shares of both on Friday.  I bought both of those based on the theory that they were making small pullbacks before moving higher.  As the day wore on, the price of both stocks told me that my trades were wrong.  I took my losses and moved on.  My stops were much lower than where I sold, so my losses were only a fraction of my initial employed risk.  I’m now over 35% cash and still feel a little uneasy about that.  I may continue to unwind, but will hold steady for now.

My picks from yesterday’s blog performed laughably poor.  Seriously, chances are I couldn’t look like a bigger moron if I tried.  Granted, I purchased none of them, so it was all hypothetical…nevertheless, when writing an initial blog entry about stocks to watch you *might* want to do better than that.

I have to say, this market suddenly looks scared.  People were stomping over each other trying to get out of stocks today (hey, I think I saw you pushing that old lady with the walker out of the way).  That piece of garbage known as $VXX was up over 12% and the actual VIX, in one day, is as high as it was at the beginning of December.  If you want to try and pick stocks here, you have far larger balls than I.  Amazing that after one day, I suddenly see little reward and a comparatively large amount of risk, no?  January 28th also saw similar behavior.  However that was only to lure bears into the trap and have them slaughtered on February 1st.

Like I said yesterday, there is going to be a correction.  When it happens (and it may be happening right now), who knows how far it will go.  Recall that everything made from February-April 2010 was mostly wiped out in a few days and completely gone in less than a month.

If this is the start of a real correction, the question you need to ask yourself is: what is your strategy to try and deal with this dynamic situation?  At what point will you know to change course?  There will be a significant increase in volatility, momentum stocks that have been going parabolic will start getting hammered.  The methods that have worked since September (i.e. pick a bunch of high relative strength and beta stocks and throw darts at them) will not work.  You will lose money.  If you aren’t careful, you will lose all of the money you have gained in this rally…it can happen that fast.

Yeah, this stock market stuff is simple when it goes up every day.  My goal is to slightly outperform the indicies during bull markets, but then to absolutely CRUSH them when things go south.  I have a strategy in place, my experience has provided me with a system which gives me the confidence to know when to switch gears.

That said, we aren’t anywhere near that point yet, but every time we get a hint of a correction, I go on ‘high alert’ and start watching various indicators that I have developed to assist me in gauging market sentiment.  With that…stay focused and do not hesitate to adapt if conditions continue to worsen.

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